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CST: 23/10/2019 06:20:34   

Dolby Laboratories Reports First Quarter Fiscal 2019 Financial Results

265 Days ago

SAN FRANCISCO, Jan. 30, 2019 (GLOBE NEWSWIRE) -- Dolby Laboratories, Inc. (NYSE:DLB) today announced the Company's financial results for the first quarter (Q1) of fiscal 2019. For the first quarter, Dolby reported total revenue of $302.4 million, compared to $299.5 million for the first quarter of fiscal 2018.

“We’re off to a solid start to 2019, and we are excited that a growing number of consumers around the world are able to enjoy Dolby experiences,” said Kevin Yeaman, President and CEO, Dolby Laboratories. “Our momentum for Dolby Vision and Dolby Atmos was on strong display at CES, and we opened our first Dolby Cinema in the UK at the iconic Odeon Leicester Square.” 

First quarter GAAP net income was $98.2 million, or $0.93 per diluted share, compared to GAAP net loss of $53.3 million, or $0.52 per diluted share, for the first quarter of fiscal 2018. On a non-GAAP basis, first quarter net income was $78.7 million, or $0.74 per diluted share, compared to non-GAAP net income of $95.4 million, or $0.90 per diluted share, for the first quarter of fiscal 2018. A complete listing of Dolby's non-GAAP measures are described and reconciled to the corresponding GAAP measures at the end of this release.

As previously indicated, Dolby adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606") in the first quarter of fiscal 2019, and today’s announced results and the financial outlook are presented in accordance with that new revenue standard. Dolby adopted ASC 606 using the full retrospective transition method. Therefore, all prior periods are also presented in accordance with the new revenue standard. Included at the end of this press release are financial results for fiscal 2017, fiscal 2018, and the four quarters of fiscal 2018, as adjusted in accordance with ASC 606.

Dividend

Today, Dolby announced a cash dividend of $0.19 per share of Class A and Class B common stock, payable on February 21, 2019, to stockholders of record as of the close of business on February 12, 2019.

Financial Outlook

Q2 Fiscal 2019

Dolby is providing the following estimates for its second quarter (Q2) of fiscal 2019:

  • Total revenue will range from $325 million to $345 million
  • Gross margin percentages will be approximately 88 percent on a GAAP basis and approximately 89 percent on a non-GAAP basis
  • Operating expenses will be between $206 million and $210 million on a GAAP basis and between $186 million and $190 million on a non-GAAP basis
  • Diluted earnings per share will be between $0.48 and $0.54 on a GAAP basis and between $0.81 and $0.87 on a non-GAAP basis
  • Effective tax rate will be between 38 percent and 42 percent on a GAAP basis and between 19 percent and 21 percent on a non-GAAP basis

Fiscal Year 2019

Dolby is providing the following estimates for its fiscal year 2019:

  • Total revenue will range from $1.24 billion to $1.28 billion
  • Gross margin percentages will be approximately 87 percent on a GAAP basis and approximately 88 percent on a non-GAAP basis
  • Operating expenses will range from $786 million to $796 million on a GAAP basis and from $705 million to $715 million on a non-GAAP basis
  • Effective tax rate for the year will be between 13 percent and 15 percent on a GAAP basis and between 19 and 21 percent on a non-GAAP basis

Conference Call Information

Members of Dolby management will lead a conference call open to all interested parties to discuss Q1 fiscal 2019 financial results for Dolby Laboratories at 2:00 p.m. PT (5:00 p.m. ET) on Wednesday, January 30, 2019. Access to the teleconference will be available over the Internet from http://investor.dolby.com/event-calendar or by dialing 1-866-548-4713. International callers can access the conference call at 1-323-794-2093.

A replay of the call will be available from 5:00 p.m. PT on Wednesday, January 30, 2019, until 9:00 p.m. PT on Wednesday, February 6, 2019, by dialing 1-844-512-2921 (international callers can access the replay by dialing 1-412-317-6671) and entering the confirmation code 8636587. An archived version of the teleconference will also be available on the Dolby Laboratories website, http://investor.dolby.com/event-calendar.

Non-GAAP Financial Information

To supplement Dolby's financial statements presented on a GAAP basis, Dolby provides certain non-GAAP financial measures to provide investors with an additional tool to evaluate Dolby's operating results in a manner that focuses on what Dolby's management believes to be its ongoing business operations. Specifically, we exclude the following as adjustments from one or more of our non-GAAP financial measures:

Stock-based compensation expense:  Stock-based compensation, unlike cash-based compensation, utilizes subjective and complex assumptions in the methodologies used to value the various stock-based award types that we grant. These assumptions may differ from those used by other companies. To facilitate more meaningful comparisons between our underlying operating results and those of other companies, we exclude stock-based compensation expense.

Amortization of acquisition-related intangibles:  We amortize intangible assets acquired in connection with acquisitions. These intangible assets consist of patents and technology, customer relationships, and other intangibles. We record amortization charges relating to these intangible assets in our GAAP financial statements, and we view these charges as items arising from pre-acquisition activities that are determined by the timing and valuation of our acquisitions. As these amortization charges do not directly correlate to our operations during any particular period, and often remain unchanged between reporting periods, we exclude these charges to facilitate an evaluation of our current operating results and comparisons to our past operating performance.

Restructuring charges:  Restructuring charges are costs associated with a formal restructuring plan and primarily relate to employee severance benefits and asset impairments. We exclude restructuring costs, including any adjustments to charges recorded in prior periods, as we believe that these costs are not representative of our normal operating activities and therefore, excluding these amounts enables a more effective comparison to our past operating performance.

Income tax adjustments:  We believe that excluding the income tax effect of the aforementioned non-GAAP adjustments provides a more accurate view of our underlying operating results to management and investors.

Impact from Tax Reform:  The enactment of the U.S. Tax Cuts and Jobs Act (“Tax Reform”), and any related amendments or revisions, requires certain discrete and infrequent charges that are not representative of current operating results and therefore, excluding these amounts enables a more effective comparison to our past operating performance.

Using the aforementioned adjustments, Dolby provides various non-GAAP financial measures including, but not limited to: non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating margin, and non-GAAP effective tax rate. Dolby's management believes it is useful for itself and investors to review both GAAP and non-GAAP measures to assess the performance of Dolby's business. Dolby's management does not itself, nor does it suggest that investors should, consider non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Whenever Dolby uses non-GAAP financial measures, it provides a reconciliation of the non-GAAP financial measures to the most closely applicable GAAP financial measures. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures as detailed above. Investors are also encouraged to review Dolby's GAAP financial statements as reported in its US Securities and Exchange Commission (SEC) filings. A reconciliation between GAAP and non-GAAP financial measures is provided at the end of this press release and on the Dolby Laboratories investor relations website, http://investor.dolby.com.

Forward-Looking Statements

Certain statements in this press release, including, but not limited to, statements relating to Dolby's expected financial results for Q2 fiscal 2019 and fiscal 2019, our ability to advance our long-term objectives and future dividend payments are "forward-looking statements" that are subject to risks and uncertainties. These forward-looking statements are based on management's current expectations, and as a result of certain risks and uncertainties, actual results may differ materially from those projected. The following important factors, without limitation, could cause actual results to differ materially from those in the forward-looking statements: risks associated with trends in the markets in which Dolby operates, including including the Broadcast, Consumer Electronics, Mobile, PC, Cinema, and Other Markets; the loss of, or reduction in sales by, a key customer or licensee; pricing pressures; risks associated with the rate at which OEMs include optical disc playback in Windows® devices and the rate of consumer adoption of Windows operating systems; risks that a shift from disc-based media to online media content could result in fewer devices with Dolby® technologies; risks associated with the effects of macroeconomic conditions, including trends in consumer spending; risks relating to the expiration of patents; the timing of Dolby's receipt of royalty reports and payments from its licensees, including back payments; the impact of Tax Reform; timing of revenue recognition under licensing agreements and other contractual arrangements; Dolby's ability to develop, maintain, and strengthen relationships with industry participants; Dolby's ability to develop and deliver innovative technologies in response to new and growing markets; competitive risks; risks associated with conducting business in China and other countries that have historically limited recognition and enforcement of intellectual property and contractual rights; risks associated with the health of the motion picture industry generally; Dolby's ability to increase its revenue streams and to expand its business generally, and to expand its business beyond audio technologies to other technologies; risks associated with acquiring and successfully integrating businesses or technologies; and other risks detailed in Dolby's SEC filings and reports, including the risks identified under the section captioned "Risk Factors" in its most recent annual report on Form 10-K. Dolby disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

About Dolby Laboratories

Dolby Laboratories (NYSE:DLB) is based in San Francisco with offices in over 20 countries around the globe. Dolby transforms the science of sight and sound into spectacular experiences. Through innovative research and engineering, we create breakthrough experiences for billions of people worldwide through a collaborative ecosystem spanning artists, businesses, and consumers. The experiences people have - in Dolby Vision, Dolby Atmos, Dolby Cinema, Dolby Voice, Dolby Dimension and Dolby Audio - revolutionize entertainment and communications at the cinema, on the go, in the home, and at work.

Dolby, Dolby Atmos, Dolby Audio, Dolby Cinema, Dolby Dimension, Dolby Vision, Dolby Voice, and the double-D symbol are among the registered and unregistered trademarks of Dolby Laboratories, Inc. in the United States and/or other countries. Other trademarks remain the property of their respective owners. DLB-F


DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)

  Fiscal Quarter Ended
  December 28,
2018
December 29,
2017

(as adjusted) 
Revenue:    
Licensing $ 260,279   $ 270,172  
Products and services 42,097   29,355  
Total revenue 302,376   299,527  
     
Cost of revenue:    
Cost of licensing 11,397   9,259  
Cost of products and services 27,232   21,634  
Total cost of revenue 38,629   30,893  
     
Gross margin 263,747   268,634  
     
Operating expenses:    
Research and development 58,647   56,444  
Sales and marketing 85,602   70,149  
General and administrative 50,813   48,285  
Restructuring charges/(credits) 14   (197 )
Total operating expenses 195,076   174,681  
     
Operating income 68,671   93,953  
     
Other income/expense:    
Interest income 5,185   3,781  
Interest expense (45 ) (35 )
Other income/(expense), net 443   (1,152 )
Total other income 5,583   2,594  
     
Income before income taxes 74,254   96,547  
Provision for income tax (expense)/benefit 24,104   (149,705 )
Net income/(loss) including controlling interest 98,358   (53,158 )
Less: net (income) attributable to controlling interest (139 ) (144 )
Net income/(loss) attributable to Dolby Laboratories, Inc. $ 98,219   $ (53,302 )
     
Net income/(loss) per share:    
Basic $ 0.96   $ (0.52 )
Diluted $ 0.93   $ (0.52 )
Weighted-average shares outstanding:    
Basic 102,677   102,552  
Diluted 106,130   102,552  
         


DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)

    December 28,
 2018
 
September 28,
2018

(as adjusted) 
ASSETS    
Current assets:    
Cash and cash equivalents $ 790,787   $ 918,063  
Restricted cash 8,999   7,187  
Short-term investments 175,557   178,138  
Accounts receivable, net 181,614   200,933  
Contract assets 199,480   165,959  
Inventories 27,765   26,206  
Prepaid expenses and other current assets 39,601   34,890  
Total current assets 1,423,803   1,531,376  
Long-term investments 201,428   187,782  
Property, plant, and equipment, net 523,193   514,182  
Goodwill and Intangible assets, net 516,332   512,001  
Deferred taxes 107,313   74,766  
Other non-current assets 50,991   42,280  
Total assets $ 2,823,060   $ 2,862,387  
     
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $ 9,811   $ 21,922  
Accrued liabilities 265,091   272,967  
Income taxes payable 121   2,680  
Contract liabilities 19,562   20,502  
Total current liabilities 294,585   318,071  
Non-current contract liabilities 23,115   22,853  
Other non-current liabilities 156,406   150,960  
Total liabilities 474,106   491,884  
     
Stockholders’ equity:    
Class A common stock 60   61  
Class B common stock 41   41  
Additional paid-in capital   66,127  
Retained earnings 2,361,843   2,313,539  
Accumulated other comprehensive (loss) (18,639 ) (15,832 )
Total stockholders’ equity – Dolby Laboratories, Inc. 2,343,305   2,363,936  
Controlling interest 5,649   6,567  
Total stockholders’ equity 2,348,954   2,370,503  
Total liabilities and stockholders’ equity $ 2,823,060   $ 2,862,387  
             


DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)

  Fiscal Quarter Ended
    December 28,
 2018
December 29,
2017

(as adjusted)
Operating activities:    
Net income/(loss) including controlling interest $ 98,358   $ (53,158 )
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 20,029   19,882  
Stock-based compensation 21,482   18,684  
Amortization of premium on investments 309   742  
Provision for doubtful accounts 1,605   1,119  
Deferred income taxes (32,571 ) 32,725  
Other non-cash items affecting net income 3,393   587  
Changes in operating assets and liabilities:    
Accounts receivable 17,736   (41,526 )
Contract assets (33,519 ) (22,449 )
Inventories (2,709 ) (1,491 )
Prepaid expenses and other assets (13,157 ) (6,591 )
Accounts payable and other liabilities (26,332 ) (33,006 )
Income taxes, net 1,546   99,551  
Contract liabilities (678 ) 1,984  
Other non-current liabilities 1,460   96  
Net cash provided by operating activities 56,952   17,149  
     
Investing activities:    
Purchases of investment securities (63,329 ) (74,479 )
Proceeds from sales of investment securities 32,582   28,383  
Proceeds from maturities of investment securities 19,785   49,476  
Purchases of PP&E (18,539 ) (19,275 )
Purchase of intangible assets (12,065 ) (11,198 )
Net cash used in investing activities (41,566 ) (27,093 )
     
Financing activities:    
Proceeds from issuance of common stock 14,272   41,463  
Repurchase of common stock (112,545 ) (29,993 )
Payment of cash dividend (19,573 ) (16,377 )
Distribution to controlling interest (906 ) (1,021 )
Shares repurchased for tax withholdings on vesting of restricted stock (19,679 ) (15,346 )
Net cash used in financing activities (138,431 ) (21,274 )
     
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash (2,419 ) 870  
Net decrease in cash, cash equivalents, and restricted cash (125,464 ) (30,348 )
Cash, cash equivalents, and restricted cash at beginning of period 925,250   634,368  
Cash, cash equivalents, and restricted cash at end of period $ 799,786   $ 604,020  
             


 
GAAP to Non-GAAP Reconciliations
(in millions, except per share data); unaudited
     
The following tables present Dolby's GAAP financial measures reconciled to the non-GAAP financial measures included in this release for the first quarter of fiscal 2019 and 2018:
     
Net income: Fiscal Quarter Ended
  December 28,
 2018
December 29,
2017

(as adjusted)
GAAP net income/(loss) $ 98.2   $ (53.3)  
Stock-based compensation 21.5   18.7  
Amortization of acquisition-related intangibles 1.8   1.9  
Restructuring credits, net   (0.2)  
Impact of Tax Reform (36.0)   137.6  
Income tax adjustments (6.8)   (9.3)  
Non-GAAP net income $ 78.7   $ 95.4  
     
GAAP diluted earnings per share $ 0.93   $ (0.52)  
Non-GAAP diluted earnings per share $ 0.74   $ 0.90  
     
GAAP diluted shares 106   103  
Dilutive equity awards   3  
Shares used in computing Non-GAAP diluted earnings per share 106   106  
     
The following tables present a reconciliation between GAAP and non-GAAP versions of the estimated financial amounts for the second quarter of fiscal 2019 and fiscal year 2019 included in this release:
     
Gross margin: Q2 2019 Fiscal 2019
GAAP gross margin   88%   87%  
Stock-based compensation 0.2%   0.2%  
Amortization of acquisition-related intangibles 0.8%   0.8%  
Non-GAAP gross margin   89%
  88%  
     
Operating expenses: Q2 2019 Fiscal 2019
GAAP operating expenses (low - high end of range)   $206 - $210     $786 - $796  
Stock-based compensation (19.0)   (77.0)  
Amortization of acquisition-related intangibles (1.0)   (4.0)  
Non-GAAP operating expenses (low - high end of range)   $186 - $190     $705 - $715  
     
Effective tax rate: Q2 2019 Fiscal 2019
GAAP effective tax rate (low - high end of range)   38% - 42%     13% - 15%  
Stock-based compensation (low - high end of range)   1% - 2%     1% - 2%  
Amortization of acquisition-related intangibles (low - high end of range)   (1%) - 0%     (1%) - 0%  
Income tax adjustments (low - high end of range)   (19%) - (23%)     4% - 6%  
Non-GAAP effective tax rate (low - high end of range)   19% - 21%     19% - 21%  
     
Diluted earnings per share: Q2 2019
  Low High
GAAP diluted earnings per share $ 0.48   $ 0.54  
Stock-based compensation 0.19   0.19  
Amortization of acquisition-related intangibles 0.02   0.02  
Income tax adjustments 0.12   0.12  
Non-GAAP diluted earnings per share $ 0.81   $ 0.87  
     
Shares used in computing diluted earnings per share 106   106  
         


Revenue Standard Adoption

In the first quarter of fiscal 2019 we adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), the new revenue recognition standard. ASC 606 replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard. The Company adopted the new revenue standard utilizing the full retrospective method. Under this method, the new revenue standard is applied retrospectively to each prior period reported.

The following tables contain summarized financial information adjusted to reflect the adoption of ASC 606.


DOLBY LABORATORIES, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)

  As adjusted to reflect ASC 606
  Fiscal Quarter Ended Fiscal Year Ended
  December 29,
2017
March 30,
2018
June 29,
2018
September 28,
2018
September 28,
2018
September 29,
2017
Revenue:            
Licensing $ 270,172   $ 272,135   $ 183,771   $ 214,699   $ 940,777   $ 965,864  
Products and services   29,355     27,587     31,009     25,871     113,822     114,311  
Total revenue   299,527     299,722     214,780     240,570     1,054,599     1,080,175  
             
Cost of revenue:            
Cost of licensing   9,259     10,610     12,111     10,604     42,584     39,329  
Cost of products and services   21,634     20,417     22,272     20,656     84,979     79,200  
Total cost of revenue   30,893     31,027     34,383     31,260     127,563     118,529  
             
Gross margin   268,634     268,695     180,397     209,310     927,036     961,646  
             
Operating expenses:            
Research and development   56,444     59,493     60,357     60,500     236,794     233,312  
Sales and marketing   70,149     74,019     79,834     85,760     309,762     296,661  
General and administrative   48,285     50,747     47,893     50,497     197,422     171,686  
Restructuring charges/(credits)   (197 )   (167 )   (82 )       (446 )   12,856  
Total operating expenses   174,681     184,092     188,002     196,757     743,532     714,515  
             
Operating income   93,953     84,603     (7,605 )   12,553     183,504     247,131  
             
Other income/expense:            
Interest income   3,781     3,892     5,488     5,809     18,970     9,577  
Interest expense   (35 )   (29 )   (87 )   (47 )   (198 )   (127 )
Other income/(expense), net   (1,152 )   (684 )   (3,603 )   (464 )   (5,903 )   (1,438 )
Total other income/expense   2,594     3,179     1,798     5,298     12,869     8,012  
             
Income/(loss) before income taxes   96,547     87,782     (5,807 )   17,851     196,373     255,143  
Provision for income tax (expense)/benefit   (149,705 )   (22,433 )   9,067     9,001     (154,070 )   (48,039 )
Net income/(loss) including controlling interest   (53,158 )   65,349     3,260     26,852     42,303     207,104  
Less: net (income) attributable to controlling interest   (144 )   (134 )   (143 )   (138 )   (559 )   (625 )
Net income/(loss) attributable to Dolby Laboratories Inc. $ (53,302 ) $ 65,215   $ 3,117   $ 26,714   $ 41,744   $ 206,479  
             
Net income/(loss) per share:            
Basic $ (0.52 ) $ 0.63   $ 0.03   $ 0.26   $ 0.40   $ 2.03  
Diluted $ (0.52 ) $ 0.61   $ 0.03   $ 0.25   $ 0.39   $ 2.00  
Weighted-average shares outstanding:            
Basic   102,552     103,771     103,836     103,349     103,377     101,784  
Diluted   102,552     107,001     106,950     106,794     106,978     103,286  
                                     


The following table presents the composition of our licensing revenue:

  As adjusted to reflect ASC 606
  Fiscal Quarter Ended Fiscal Year Ended
  December 29,
2017
March 30,
2018
June 29,
2018
September 28,
2018
September 28,
2018
September 29,
2017
Market:            
Broadcast 41 % 33 % 46 % 48 % 41 % 44 %
PC 8 % 16 % 9 % 12 % 11 % 13 %
Mobile 22 % 25 % 11 % 1 % 16 % 15 %
CE 14 % 14 % 15 % 19 % 15 % 13 %
Other 15 % 12 % 19 % 20 % 17 % 15 %
Total revenue 100 % 100 % 100 % 100 % 100 % 100 %
                         


Investor Contact:
Elena Carr
Dolby Laboratories
415-645-5583
investor@dolby.com

Media Contact:
Tony Carter
Dolby Laboratories
404-316-0201
tony.carter@dolby.com 

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